business essay

Types and Functions of Organizational Structures

Published: 23, March 2015

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The structure of an organization is very similar to that of a house or any other building. Before the building will stand up, it has to be based on solid foundations. Then the organization structure generally is establishing internal authority relationships, responsibility for work performance, and paths of communication and control required for a company to achieve its objective.

After that, what is the function of organization structure? Well, there is few function are there. First is setting strategic direction, by this function we know how the organization was going and how it is going to get there. Next is identifying core values, this is about what the organization stands for and also what it does not stand for. Leading with vision, is to encourage the employees, the customers and the other stakeholders. Setting objectives, important for the company to set goals of the organization, or what it is going to try to achieve next. Next function is talking decisions and action to move toward the objectives, this is about what the future planning for the company and know which direction is the company heading. Directing, controlling and coordinating, this is for moving the organization towards its goals. Next is evaluating performance and lastly is reviewing strategic direction, to make sure the organization is using the correct strategic to avoid any lost.

Type of organization structure

There is still many other type of organization structure around like cluster structure, regional structure, flat structure and more. But then the chosen organization structure by me is Customer Structure, Functional Structure, Matrix Structure, Network Structure, Process Structure, and Product Structure which is easier to see in the real world. Based on the research the functional structure is most beneficial to the company we have selected. Below is the chosen organization structure for this assignment.

Customer Structure

Structures around customer segments are successful where there are obvious customer segments defined by need, economics, distribution and other key attributes. Divisional/customer structures are effective: where well-defined customer segments have been identified; or when selling products/services unique to segment; or when using buyer strength; or when leveraging customer knowledge advantage; or when requiring rapid customer service and product cycles; or when perceiving minimum efficiencies of scale in functions or outsourcing; or when promoting a strong marketing/customer-focused culture.

Royal Philips Electronics [1] is an example of a customer-facing structure.

Functional Structure

A functional structure is a highly traditional structure and is often found in strong command and control organizations such as the military. The key strategy of functionally focused organizations is to maximize margins through leveraging economies of scale and functional expertise. Functional structures are effective when: there are stable and undifferentiated markets with well-understood customer requirements; or there is a successful, control-focused enterprise culture; or there is a small, single product line; or there is scale or expertise within each function; or there is long product development and life cycles; or the organization works to common standards.

The functional organization has some obvious advantages, but it also has large disadvantages. The expertise in the organization is centralized and enabled to develop further. This will also involve a kind of cultural homogeneity: People have the same academic background, they use the same technical models, and they perform tasks within the same function. All these factors are seemingly fine, but the problem is that the different professional groups distinguish themselves, distance themselves from each other, do not understand each other and easily come into conflicts with each other.

Under the functional structure, major functions are the focus. Product knowledge is centered in manufacturing, engineering, and marketing, and management of each of these departments is responsible for both domestic and international activities.

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Advantages of the Functional Structure

First is Emphasis on functional expertise. The key business tasks define work and functional expertise is brought to bear on all aspects of the operation.

Second is tight control. This centralized functional approach permits a small staff to control the firm's operations. Top management has authority and operational responsibility.

Disadvantages of the Functional Structure

First is weak regional coordination. Disputes between functional managers must often be resolved at the corporate level. The CEO is often asked to solve problems in areas in which he or she lacks expertise, such as international business.

Second is in firms with multiple product lines, functional structure can lead to top-heaviness. In multiproduct firms, functional managers need expertise in each product, or a functional manager is needed for each product.

Matrix Structure

An overused word, the Matrix has a particular meaning in structural terms. In organizational structure terms, Matrix is the version in which staff from different function work together on projects in a matrix pattern. So, a finance manager can cooperate with a sales person to secure a new contract or to rescue the costs of serving a client. The benefit is that the organization can respond quickly and effectively to changing demands from either a client or the business environment. In the process, the skills and experience of the team can be developed and honed quickly and successfully. Against this, there can be confusion on reporting conflicts and the organization can appear to be fragmented and constantly in a state of flux - but, then many organizations are constantly changing anyway.

Matrix structures typically operate in two dimensions and are usually one of three types: functional matrix, balanced matrix or project matrix. The aim of the matrix structure is to provide customers with innovative where: or core work is project-based or the work requires small groups of people; or projects require highly specialized skills and knowledge; or project skill requirements vary greatly; or labor cost is a prime economic driver.

Network Structure

Network structures are valuable for fast-moving organizations that are highly innovative and operating in an environment that requires speed, flexibility and high levels of customer focus. In network enterprises work is organized around team and unit delivery, often because units have distinctively different ways of working. However, as the units work in combination, the delivery to the customer is seamless.

The movement of a parcel from point of dispatch to point of delivery, via a company such as UPS [4] , is an illustration of a network structure.

Process Structure

As the name suggests, the focus here is on the process of how to go about the work, usually in a smooth, almost horizontal way. There is often virtually no vertical function in that, provided a team keeps its clients and other stakeholders happy, it is left alone to get on with its job. This type of structure can enhance cross functional working and general cooperation. On the downside, it can also result in the work flow being regarded as more important that the end product, so quality can suffer. Responsibility can also be diffuse, which can be disadvantages to some - employees and customers alike. Perhaps the major issue is that the vertical chimney effect can blind managers to the possibilities of stronger cooperation, tighter cohesive strategic thinking and the benefits of centralized, corporate planning.

In this structure the focus is on processes where core services are operated across the enterprise. Internal support services are frequently organized in this way but customer-facing services are equally well served by this structure, which is a good alternative to the functional structure. Process focused structures work well when: or there are well-defined processes serving different customers (internal/external); or there is potential for new processes and/or radical change to processes; or there is a requirement to reduce working capital; or there is a need to reduce process cycle times; or there is little interdependency between core processes; or there are different cultures/workforces between core processes.

Product Structure

A divisional/product structure is the most appropriate in a business where there are low synergies between the buyers and the distribution channels of the different divisions. Typically, in this structure each division runs as an independent business unit. Divisional/product structures are effective when: stakeholders perceive low synergies between products; or there are different purchasing process/distribution channels; or there are different operating requirements for success; or there is a different competitive environment; or there are short product development and life cycles; or there is a minimum efficiency of scale for functions or outsourcing.

Product organization is a significant form of organization today. It is particularly useful in organizations with clearly separated product groups or services. Quick changes in competitive conditions and technology cause great advantages for this organizational form in preference to functional organization. The advantages of product organization are that the specialists in the organization are able to focus on one specific product group and make quick decisions. Also, the final result will also be much clearer than in functional organization where responsibilities are often volatilized.

Danone [5] is an example of an organization structured on product lines as the following extract from its website illustrates.

In order to handle such a task, many organizations have experimented with different structural solutions, which include setting up groups or project groups across the established structure (basic organization). The language use in there solutions is a bit hesitant. There are three types of organizations; ad hoc organizations, project organizations or matrix organizations. It is not a matter of making repairs on an organization but of developing a double-acting organization in which large parts of the organization is prepared to live with crossing lines.

Comparing Structures

Conclusion

For the organization structure, the decision of structure that has chosen is functional structure. Why choose this? Because

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